A Simple, Model-Independent Analysis of Reasons for Non-Fulfillment of the Declared Inflation Target

In the period 1998-2007, inflation very often deviated from inflation targets of the Czech National Bank, most of these deviations being in the direction of undershooting the targeted level. In this paper, a purely statistical, model-independent procedure is used to search for an answer to the question of whether this clear asymmetry in inflation target fulfillment can be explained more by an asymmetry in outside shock or an asymmetry of the Czech National Bank’s monetary policy. Our results indicate that the latter explanation is statistically more persuading. For the period since 2002, moreover, it looks like the decisions of the Czech National Bank’s Bank Board more or less sticked to the recommendations implicit in materials supplied by the Bank’s forecasting team; the bias in this second period, at least, can therefore be ascribed to the Bank‘s forecasting apparatus rather than preferences of the Bank Board as revealed in its monetary policy decisions.